WILSONVILLE, Ore. — FLIR Systems, Inc. announced financial results for the fourth quarter and full year ended December 31, 2018.
“I’m proud of our team’s performance in 2018,” said Jim Cannon, FLIR President and Chief Executive Officer. “We achieved organic revenue growth and margin performance the Company hasn’t reached in many years, and we delivered record adjusted earnings per share and operating cash flow. We are well-positioned for 2019 with strong bookings, numerous new product launches, and the recently announced acquisitions of Aeryon Labs and Endeavor Robotics, moving us forward in the execution of our unmanned integrated systems strategy.”
Cannon continued, “This was a transformational year for FLIR as we began to execute on our strategic vision to Fuel, Feed, and Focus the business with The FLIR Method as the Foundation. I am more confident than ever in our ability to deliver on our strategic priorities and our purpose to innovate the World’s Sixth Sense to save lives and livelihoods.”
Fourth Quarter 2018
Fourth quarter 2018 revenue was $448.5 million, 9.4% lower than fourth quarter 2017 revenue of $494.8 million, which included revenue of $46.8 million from the previously disclosed divested security businesses. Organic revenue growth was flat compared to the prior year.
GAAP Earnings Results
GAAP gross profit in the fourth quarter 2018 was $227.8 million, compared to $237.8 million in the fourth quarter of 2017. GAAP gross margin increased 270 basis points to 50.8% in the fourth quarter 2018, compared with 48.1% in the prior year. GAAP operating income in the fourth quarter increased 11.3% to $85.9 million, compared to $77.2 million in the prior year, representing a 360 basis point improvement in operating margin.
Fourth quarter 2018 GAAP net earnings were $98.5 million, or $0.71 per diluted share, compared with GAAP net loss of $50.3 million, or ($0.36) per diluted share in the fourth quarter last year. Fourth quarter 2018 GAAP net earnings increase was driven primarily by a $33.3 million reduction in accrued income tax as a result of the settlement of tax assessments issued by Belgium in connection with the European Commission’s 2016 decision on state aid (“Belgium tax item”). Fourth quarter 2017 GAAP earnings were negatively impacted by a non-cash loss on net assets held for sale, as well as discrete tax items associated with the enactment of U.S. tax reform.
Cash provided by operations was $98.3 million in the fourth quarter of 2018, compared to $98.9 million in the fourth quarter of 2017. Approximately 3.0 million shares were repurchased in the fourth quarter of 2018 at an average price of $47.80.
Non-GAAP Earnings Results
Adjusted gross profit was $233.5 million in the fourth quarter 2018, down from adjusted gross profit of $242.9 million in the fourth quarter of 2017. Adjusted gross margin increased 300 basis points to 52.1%, compared with 49.1% in the fourth quarter of 2017. Adjusted operating income was $107.9 million in the fourth quarter, which was 3.4% lower than adjusted operating income of $111.7 million in the fourth quarter of 2017. Adjusted operating margin increased 150 basis points to 24.1%, compared with 22.6% in the fourth quarter of 2017.
Adjusted net earnings in the fourth quarter 2018 were $85.8 million, or $0.62 per diluted share, which was 6.9% higher than adjusted earnings per diluted share of $0.58 in the fourth quarter of 2017.
Business Unit Results
Fourth quarter 2018 revenue from the Industrial Business Unit was $181.7 million, in-line with fourth quarter 2017 revenue of $181.7 million with increased sales of cooled thermal cores, unmanned aerial systems (UAS), and automotive solutions offset by decreased instruments and uncooled core sales. The Government and Defense Business Unit contributed revenue of $171.1 million during the fourth quarter, down 2.5% from the prior year, with strength in UAS, integrated systems, and maritime offset by declines in CBRNE systems and impacts from the government shutdown. The Commercial Business Unit recorded $95.7 million of revenue in the fourth quarter, down 30.5% from the prior year. Commercial organic revenue growth increased 5.4% in the same period excluding revenue from the previously disclosed divested security businesses. Strong results in security and intelligent transportation systems contributed to organic revenue growth.
Full Year 2018
For the full year, 2018 revenue was $1,775.7 million, down 1.4% compared to $1,800.4 million for the year ended December 31, 2017. Organic revenue growth was 6.4%, excluding the previously disclosed divested security businesses which included revenue of $140.4 million in 2017.
GAAP Earnings Results
GAAP operating income for 2018 was $318.6 million, compared to $290.0 million in 2017, with 2017 being negatively impacted by the non-cash loss on net assets held for sale. GAAP operating margin was 17.9% in 2018, compared with 16.1% in 2017, representing a 180 basis point improvement.
2018 GAAP net earnings were $282.4 million, or $2.01 per diluted share, compared with 2017 GAAP net earnings of $107.2 million, or $0.77 per diluted share. 2018 GAAP net earnings increase was driven primarily by the previously discussed Belgium tax item, and U.S. Federal transition tax due as a result of the U.S. Tax Cuts and Jobs Act. 2017 GAAP earnings were negatively impacted by the non-cash loss on net assets held for sale, as well as discrete tax items associated with the enactment of U.S. tax reform.
Cash provided by operations during 2018 was $374.2 million, compared to $308.3 million in the prior year, a 21.4% increase. Approximately 5.0 million shares were repurchased in 2018 at an average price of $48.88.
Non-GAAP Earnings Results
Adjusted operating income for 2018 was $403.7 million, 11.1% higher than 2017 adjusted operating income of $363.5 million. Adjusted operating margin increased 250 basis points to 22.7% in 2018, compared with 20.2% in 2017.
Adjusted net earnings in 2018 were $311.8 million, or $2.22 per diluted share, which increased 18.1% over 2017 adjusted earnings per diluted share of $1.88.
Business Unit Results
Full year 2018 revenue from the Industrial Business Unit was $717.9 million, an increase of 6.8% over last year driven by increased sales of cooled thermal cores, optical gas products, UAS, and automotive solutions. The Government and Defense Business Unit contributed revenue of $663.4 million during 2018, up 5.4% over 2017, with strength in land systems, UAS, and radiation detection products. The Commercial Business Unit recorded revenue of $394.4 million during 2018, down 21.0% from the prior year. Commercial organic revenue growth increased 7.3% in the same period excluding revenue from the previously disclosed divested security businesses. Strong results in maritime and intelligent transportation systems contributed to organic revenue growth.
Financial Outlook for 2019
FLIR estimates revenue in 2019 to be in the range of $1.92 billion to $1.95 billion. This represents 8% to 10% revenue growth compared to 2018, including approximately 5% organic revenue growth, in-line with our strategic plan presented in May 2018. FLIR also expects 2019 adjusted operating income margins to be in the range of 22% to 23%, and adjusted earnings per diluted share to be in the range of $2.30 to $2.36. 2019 financial outlook includes contributions from the recently announced Aeryon Labs and Endeavor Robotics acquisitions. Adjusted earnings per share assumes an effective tax rate of 20.5%, net interest expense of $25.5 million and a diluted share count of approximately 137.7 million shares.
Dividend Declaration
FLIR’s Board of Directors has approved a quarterly cash dividend of $0.17 per share on FLIR common stock, an increase of 6% over the previous quarterly dividend of $0.16 per share. The Board of Directors has declared the dividend payable on March 8, 2019, to shareholders of record as of close of business on February 22, 2019.
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